Building society introduces measures to combat unfair leases
Nationwide Building Society has recently announced that they are introducing valuation measures to protect homeowners from unfair or onerous leasehold terms.
As the first key lender to implement more transparent conditions in regards to leasehold homes, the Society aims to stop prospective homeowners being unwittingly tied into unfair contracts. Such contracts were the reason housebuilder Taylor Wimpey recently set aside £130 million in order to compensate disgruntled homeowners.
The Society state that on new mortgage applications for new build transactions, the minimum acceptable lease terms will be 250 years for houses and 125 years for flats. This will apply to new-build mortgage applications from the 11 May.
As well as this, the maximum ground rent at the start of a new build lease must be equivalent to 0.1% of the property’s value. It must also be ‘reasonable at all times during the lease term’. Unreasonable multipliers – such as rent doubling after a certain number of years – are also not allowed, with any rent rise needing to be linked to a verified index, such as the Retail Price Index.
Where a valuer feels that the property’s marketability will be affected significantly by unreasonable lease terms, they are able to take this impact into account when valuing the property, or simply declining it altogether.
Commenting on the new measures was Robert Stevens. The Head of Property Risk, Data and Strategy at Nationwide stated: “As a mutual building society that looks to protect its members, we have decided to make changes to the way we value new build properties on a leasehold basis. We are doing this to address the practice of using leasehold tenure where this is unnecessary, particularly for new build houses, and to ensure that onerous leasehold terms, including ground rents, are properly considered and controlled in order to safeguard our mortgage members.
“Nationwide is taking a proactive, leading position on this issue to address a significant risk facing our members and to challenge what we believe to be poor practice in the new build market.
“The changes are limited to new applications on new build transactions from 11 May 2017 and will not apply to properties being sold second hand. It will apply to both Nationwide and The Mortgage Works (TMW) mortgage applications.”